Final Bubble Phase for the Stock Market: Final Capitulation for Gold

After two hard days down in the stock market I'm going to take a contrary
position and say that this is just a normal profit taking event and that stocks
are going to recover and head back up to new highs. I still think this market
needs to have a final blow off bubble phase before the bull can die. The final
bubble phase for stocks should usher in the final capitulation stage of gold's
2 1/2 year bear market. For those like SMT subscribers that are sitting in
cash, this final capitulation is going to represent one of the greatest buying
opportunities of this generation.

First off let's take a look at the stock market:

We've had so many calls for a crash over the last year that you just know
the bears are salivating right now thinking they are finally going to get their
wish. However, I don't think we can have a crash in the stock market until
we complete a true parabolic structure. Notice that during the final parabolic
move in 2000 the NASDAQ had two back-to-back 10% corrections, one of them unfolding
in only three days and completing what looked like at the time a double top.
The shorts that jumped in at the bottom of that second 10% correction then
got absolutely destroyed over the next six weeks as the tech sector proceeded
to rally 34%.

We saw a very similar pattern during oil's parabolic advance in 2008 - two
very convincing 10% corrections followed by a 5 to 6 week surge into a final
top.

The fashionable call right now is that the big momentum names like Facebook,
Priceline, Tesla, Netflix, etc. are leading the market into a new bear. I on
the other hand think these stocks are just pulling back in preparation for
one final mind blowing surge to top off this five-year bull market.

Gold on the other hand looks like it is setting up for a final bear market
capitulation phase where every gold bug finally throws up their hands in disgust
and jumps over to the stock market right as it's putting in a final bubble
top.

It's now been a year since gold broke through that $1520 support zone and
gold has yet to ignite a new bull market move. We've had two very convincing
bear market rallies but both have rolled over at that same $1400 level. I'm
afraid this has probably so demoralized precious metal investors that when
we get our next test of that sub $1200 level later this month there just aren't
going to be any buyers left to defend that level. A third test of that support
will almost certainly end in a break and final violent capitulation down to
the next support zone at the 2008 high a little above $1000.

As gut wrenching as it is for me to say this, this final capitulation will
probably shave another 30-50% off of the mining stocks and bankrupt many of
the juniors.

There have been numerous warning signs over the last two weeks that the gold
bear might not be done just yet. If we had seen a final bear market bottom
on December 31 the miners should have rallied at least 75 to 100% in the first
two months. Well two months went by and the best that the HUI could deliver
was a 35% gain.

Also when gold failed to move above $1434 it set the yearly cycle up in an
extreme left translated pattern. For those that don't know what translation
is let me explain. Gold's yearly cycle for instance typically runs about 12
months from trough to trough. A cycle that tops in a right translated manner
would find a high somewhere after the seventh month. A left translated cycle
on the other hand would find a final top in six months or less. So if a cycle
runs 12 months and tops in a left translated fashion on let's say month four
it has eight months to decline. Much longer than the four months it rallied.
So consequently, left translated cycles typically move below the previous cycle
low. As you can see in the chart below gold's yearly cycle topped in an extreme
left translated pattern on month #2.

As I have noted in previous reports gold is now moving down into an intermediate
degree bottom, and this intermediate bottom will also be a larger degree yearly
cycle bottom. The magnification of those two larger degree cycles coming together
at the same time should create an exceptionally violent and aggressive move
over the next 4-8 weeks. The risk is very high that gold is going to break
that double bottom support over the next 1 to 2 months, and when it does I
don't think anything will stop the decline until it reaches the next major
support zone a little above $1000.

That's the point at which investors that have available cash will get the
third great buying opportunity of this secular bull market. The first two delivered
amazing gains as they came out of their bear market bottoms.

This coming bear market bottom will be no different, and it might be even
more intense than the other two as it should kickoff the final 2-3 year bubble
phase of the secular gold bull.

For those that have the mental fortitude to buy at the impending bottom when
it looks like the entire sector is going to collapse forever, this is where
millionaires and billionaires will be made.

Remember bear markets create opportunities and the bigger the bear, the bigger
the opportunity. Just look at the recent bear market in stocks as an example.
At the bottom in 2009 the stock market bear was the second most damaging in
history. It generated a five year bull market that has rallied 185% and I don't
think it's done yet.

Once the current counter trend rally is finished, and I don't really expect
it to get through resistance at $1320-25, gold should head down into its final
bear market bottom.

I look forward to trying to call that final bottom in real time over the next
couple of months.

To sample the premium newsletter consider clicking on the subscription
button at the top of the GoldScents home
page and try a one week trial of the premium service that includes daily
and weekend market updates.

Gold Scents is a financial
blog focused on the analysis of the stock market and the secular gold bull
market. Subscriptions to the premium service include a daily and weekend market
update emailed to subscribers. If you would like to be added to the email list
that receives notice of new posts to Gold
Scents, or have questions, email
Toby.